Apple Doesn’t Need a $200 iPad Mini

With a starting price tag of $329, Apple’s new iPad mini may be too expensive to attract budget-conscious consumers drawn to Google’s Nexus 7 and Amazon’s Kindle Fire, which, at $249 and $199, are significantly cheaper. But does that even matter?

Wall Street seems to think so. Apple’s shares slipped Tuesday following the mini’s unveiling and the announcement that Apple hadn’t hit the $299 price point that many had hoped for, let alone the $249 “barn burner” that some analysts at predicted. To those folks, the iPad mini may not be cheap enough to resonate with price-sensitive users looking for tablets at the market’s lower end.

But it will almost certainly resonate with others looking for a smaller, best-in-class tablet. And, honestly, when has Apple ever played at the bottom of the pricing barrel? The company’s M.O. has always been to build premium products that command premium prices and offer great margins. As Mike McGuire, research vice president at Gartner, told AllThingsD, “Apple didn’t need to come down to $200; they’ve never done products to hit competitors’ price points.”

And they’re obviously not going to start now. Because they don’t need to. Apple has sold 100 million iPads since it first launched the device two-and-a-half years ago. How did it manage to do that? Apple CEO Tim Cook answered that very question Tuesday: “Why is iPad so successful?” he asked. “Well, there’s a simple explanation. People love their iPads.”

A pat answer, I suppose. But apt. Because that’s what Apple is counting on as it rolls out the iPad mini at a price point well above that of the smaller tablets against which it will compete. Consumers already love the iPad value proposition: Compelling design, high-quality hardware and services, and a massive apps ecosystem. “Others have tried to make tablets smaller than the iPad, and they have failed miserably,” Apple marketing VP Phil Schiller said Tuesday. “Competitors are making compromises with their products. We don’t.”

And by offering iPad’s value proposition in a smaller form factor with a lower price, Apple is very likely dramatically expanding the iPad’s addressable market. And it may make life for low-end tablet makers like Amazon and Google a little bit more difficult in the process. There’s no question that the market opportunity Amazon and Google seized early with the Kindle Fire and Nexus 7 will begin to decline in size on Nov. 2 when the iPad mini ships.

“IPad mini will likely pull sales from other 7- and 8-inch tablets for consumers looking for a cheaper iPad but not the cheapest tablet or where form factor was a key purchase factor,” Gartner analyst Michael Gartenberg told AllThingsD. “Apple has never made a race to the bottom in pricing as part of their strategy, leaving the lowest price (and lowest margin) sectors for players in that space to battle each other.”

Said J.P. Morgan analyst Mark Moskowitz, “Should Amazon and Google be worried? Yes, they should be worried.”

So, how will the mini sell?

Well, according to the analysts I’ve spoken with. “Though we thought a sub-$300 price would be optimal, the iPad mini’s specs and app ecosystem should be able to command a premium, while also enabling Apple to generate a higher margin,” Baird analyst Will Power told AllThingsD. “We still expect strong sales, even at $329.”

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